Former Bangladesh Bank governor Mohammed Farashuddin on Thursday blamed the frequent rescheduling of classified loans for high inflation persisting in the country.
He made the remark during a programme organised by the Economic Reporters鈥� Forum.
Farashuddin said that loan rescheduling created a liquidity crisis for banks.
To compensate, the central bank is forced to print money, which he believes contributes to inflation instead of curbing it.
He also criticised the ineffectiveness in recovering defaulted loans.
The former governor observed that a crucial problem he believes was originated in 1992 鈥� issuing long-term loans using short-term deposits. He suggested businesses explore the stock market as an alternative source for long-term financing.
Farashuddin expressed concern about the apparent connection between loan defaulters, tax evaders and money launderers.
The former BB governor said that it seemed the government was silent on the money laundering.
The publication of money launderers鈥� list was discussed in parliament, but has not published yet.
Along with the government, the International Monetary Fund is silent on trafficking, which he described as extremely detrimental to the country.
Regarding inflation, Farashuddin stated that despite the 9-per cent inflation rate, government ministers were claiming that people were doing well, which he believes was far from reality.
It could be said that people are faring well in this inflationary environment, he said.
He emphasised that the wealth gap between the rich and the poor has widened, and addressing this disparity requires not only economic but also political measures.
Farashuddin criticised the use of multiple exchange rates, stating that it benefits only intermediaries.
He highlighted that other countries have successfully curbed inflation, raising concerns about Bangladesh鈥檚 lack of progress.
The former governor criticised the harsh treatment of small loan defaulters, contrasting it with the apparent inaction against those responsible for larger defaults.
He also said the waiver of interest on loans was not a good thing.
He said that merger is an international practice of acquiring a weak bank by a good a bank.
However, both banks must give their consent for the merger as a forced one will be wrong, he said.
He also said that there were other ways than mergers to turn a weak bank into a good one.
ERF president Mohammad Refayet Ullah chaired, while its general secretary Abul Kashem conducted the event.